Sunday, 19 October 2008

Turning on the spending tap

The Treasury is trying to boost public spending, a difficult task to say the least given the UK's fiscal condition. One risk in the present situation is that the Government will start printing money, leading to an inflationary spiral.

However, the Treasury does have one trick up its sleeve which was revealed in the somewhat obscure Public Expenditure Outturn White Paper published in July. When Gordon Brown was Chancellor, rules were changed to stop the mad rush to spend any money that was left in departmental budgets at the end of the financial year. They were allowed to carry on capital spending without penalty to the following year.

This year the Treasury sliced £4bn from the amount that departments wre allowed to carry forward, particularly from the Department of Health budget. That money is now available to be pumped into the economy.

However, the latest higher than expected increase in the unemployment figures show that the recession is effectively under way. Just how high unemployment will go no one knows, but 2.5 million by the end of 2009 is not unrealistic.

Of course, not everyone suffers equally in recessions. Sales of knitting patterns at Sirdar are now running 4 per cent over budget and 6 per cent above last year as the thrifty hobby enjoys a revival. Sales of vegetable seeds are up and do-it-yourself stores might benefit as people seek to save money on home improvement projects.

Small businesses are always under threat in a downturn, but the small business run by one of my children is moving into new premises. Although things are perhaps a little bit quieter than usual, business is holding up well and enquiries are coming
in from potentially new customers.

Of course, it's the aggregate picture that matters and the Government will certainly be trying to keep house repossessions down to tolerable levels. Those who suffered personal hardship under the Major Government were, unsurprisingly, particularly likely to move their vote away from them in 1997.

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